Integrated Report 2016 - Group - QUICK Disclosure

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Integrated Report 2016 - Group - QUICK Disclosure
Group

                                         Integrated Report
                                                       2016
                                          For the Year Ended December 31, 2016

SKYLARK CO., LTD
1-25-8 Nishikubo, Musashino-shi, Tokyo
http://www.skylark.co.jp/
Integrated Report 2016 - Group - QUICK Disclosure
Get to
                                      Swiftly Perceive Changes in Living
                      know                                                                                                                                      It was our founders who popularized the term “Family Restaurant” in Japan.
                     Skylark
                                      “Responsiveness”                                                                                                          After opening the first Skylark restaurant—inspired by a well-established coffee shop in the
                                                                                                                                                                United States—Skylark has repeatedly carried out new initiatives adapting to the lifestyles and
                                                                                                                                                                needs of customers, who change with the times. This approach has not changed.
                                                                                                                                                                In anticipation of the times, Skylark will continue to develop its business to meet customer needs.

                                                                                                                   Increasing popularity                                                                                                                 Diversification of
                                                                         Increasing demand                         of lower priced                              Increasing demand                              Increasing concern for                    preferences
                       Increasing
                       motorization in Japan                             for casual dining                         restaurants                                  for home-meal                                  food safety and                                including preferences for
                                                                              due to the trend toward                                due to the collapse
                                                                                                                                                                replacement                                    security                                       the authentic, experiential
                                                                              nuclear families, the                                  of the bubble                         as more women                                                                      consumption, and
    Global Trends

                                                                              increase in single-person                              economy                               enter the workforce                                                                health-consciousness
                                                                              households, and rising
                                                                              living standards

    1970s                                                                     1980s                                1990s                                                 2000s                                                                2010s
                                                                                                          1992
                       1970
                                                                                                          First affordably priced                               1998
                       First Skylark restaurant                                                           Gusto restaurant                                      Gusto introduces
                                                                                                                                                                                                                                              2015
                       opened roadside                                                                                                                                                                                                        Developing specialty brands
                                                                                                          opened                                                home delivery service
                       Inspired by a well-established coffee shop in
                       the United States, the first Skylark restaurant
                                                                                                           In response to a decline in customers                With the aging of society, and women’s social                                 tailored to your needs
                                                                                                           caused by economic change, Skylark devel-            advancement, the need for home meal replacement
                       opened in Fuchu City, Tokyo.                                                                                                                                                                                           Amid ongoing diversification, evolving consumer preferenc-
                                                                                                           oped Gusto, a new low-priced format.
                                                          1977                                                                                                  is increasing. As of April 2017, we had developed                             es and segmentation of consumption, customers’ food
                                                                                                                                                                home delivery service at about 900 restaurants to                             needs are also changing. In response to these changes, we
                                                          Established commissaries                           Installed drink bar and                            support the eating habits of our customers.                                   are developing a variety of specialty restaurants.
                                                          in anticipation of growth                          waiter call system
                                                                                                             Gusto was the first in the industry to introduce
                                                          To promote the standardization necessary for       drink bars and waiter call systems that are now
    Skylark Trends

                                                          chain operation, we established the Commis-        commonly found in family restaurants. We have
                                                          sary System to take charge of processing,          prioritized the offering of low priced and
                                                          distribution, and inventory management of          great-tasting food to customers. Taking the
                                                          food ingredients at one location.                  initiative over our competitors, we have
                                                                                                             adopted new service formats and become the
                                                                                                             industry leader.

                                                                                                                                                                                        2007
                                                                                                                                                                                        Introduced a low allergen menu and healthy menu,
                                                                                                                                                                                        combined with transparent communication of the latest
                                                                                                                                                                                        allergy information
                                                    Introduced point-of-sale (POS) system and                                                                                           We developed a menu to respond to the increase
                                                                                                                                                                                        in people with food allergies and the health-con-
                                             TOPICS first handheld order entry system                                                                                                   scious. We have developed our restaurant menus
                                             1981~      The restaurant industry has actively introduced information technology, Skylark was
                                                                                                                                                                                        in such a way that many customers can enjoy
                                                        an early adopter and the first in the industry to begin using a handheld order entry
                                                                                                                                                                                        eating out. Moreover, since 2008, we have set up
                                                        system. We have improved the efficiency of our operations by utilizing these systems.
                                                                                                                                                                                        a system for disclosing the latest allergy informa-
                                                                                                                                                                                        tion for the menus we offer.

1   Skylark Group integrated report 2016                                                                                                                                                                                                                           Skylark Group integrated report 2016    2
Integrated Report 2016 - Group - QUICK Disclosure
Skylark’s distinctive robust
       Get to                                                                                                                               Delivering fresh food ingredients daily to restaurants
        know
       Skylark
                          “Foundational Strength”                                                                                           Commissaries

                                                                                                                                            10
                                                                                                                                                                                    Commissaries at 10 locations nationwide are
                                                                                                                                                                                    responsible for managing food ingredients and
                                                                                                                                                                                    primary processing. Consolidating the preliminary
                                                                                                                                                                                    processes and preparation of sauces has helped to
                          Our progress of more than 45-years as a family restaurant pioneer                                                                                         reduce the burden of cooking at restaurants and
                          has shaped the foundation that supports Skylark today.                                                                                                    provides higher-quality products.

                                                                                                                                             locations
                                                                                                                          Hokkaido area

                     In the table service restaurant industry, we have                                                       27
         D’s
    WORLP!!          the largest number of restaurants                                                                                                               High retention rate and highly capable Employees
      TO

                                                                                                                                                                                                                                                    100
                     in the world

                    3,079
                                                                                                                                                                     Skylark is working to retain competent employees with its
                                                                                                                                                                     improved educational and staff award systems. Due to
                                                                                                                                                                     the foundational strength of Skylark, our staff effectively
                                                                                                                                                                     manage menu revisions, format changes, and new store
                                                                                                                                                                     openings that support Skylark’s growth aspirations.

                                                                                                               Tohoku area

                                               restaurants                   (as of May 31, 2017)                   108                                                                                                                                thousand people
                    The Skylark Group is a core business of the table
                    service restaurant operation that provides a wide                                                       Sendai
                    range of dishes including Western, Chinese, and
                    Japanese. Our restaurants have spread to every                       Koshinetsu area

                                                                                            158
                    prefecture in Japan and is one of the largest                                             Kitakanto area
                    restaurant chains in the world.                                                                                         Multiple brands
                                                                        Hokuriku area
                                                                                                                    176                     that meet a wide range of needs
                                                                           48
                                                                                                         Maebashi

                                                                                                                                            More than                                Starting with our mainstay

                                                                                                                                            20
                                                                                           Fujioka
                                                                                                           Higashimatsuyama                                                          brand “Gusto,” we have
           Taiwan                                        Kinki area                         Akishima                                                                                 developed a wide range of
            48
                                                                                                                    Shisui

                                                         321                       Gifu          Sagamihara                                                                          brands that transcend the
                                Chugoku area                                                                                                                                         boundaries of food. In addition
                                    101
                                                                                                     Tokyo metropolitan area
                                                                            Tokai area                                                                                               to formats where different

                                                                                                          1,622
                                                      Nishinomiya
                                                                                                                                                                                     kinds of dishes can be enjoyed,
                                                                            278                                                                                                      we have recently developed
                                                                                                                                                                                     specialty formats including

                                                                                                                                            brands
                                 Kitakyushu                                                                         •••
                                                                                                                          Commissaries                                               cafés and Japanese cuisine.
                                               Shikoku area

                                                   60
                                                                                                                Numbers in black indicate
                      Kyushu area                                                                               the number of restaurants

                        120                                                                                                                                                                                                                                                                           ’s
                                                                                                                                                                Skylark Co., Ltd.                                                                                                               JAPAPN!!
                                                                                                                                      ’s                                                                                                                                                          T O
                                                                                                                                JAPAPN!!              Zensho Holdings Co., Ltd.

                                                                                                                                  TO

                                                                                                                                                                                                                                                                                1
                                                                                                                                              Doutor Nichires Holdings Co., Ltd.

                                                                                                                                                              Saizeriya Co., Ltd.

                                                                                                                                                                                                                     Industry No.
                                                                                                                                                                                                                     2016 Ordinary Income*
    Okinawa area                               Received the                                                                                       Toridoll Holdings Corporation

        12                                     Best Japan Brands 2017 award                                                                        Saintmarc Holdings Co., Ltd.

                                                                                                                                                                Plenus Co., Ltd.
                                                                                                                                                                                                                     The Skylark Group is ranked second in the industry in total sales
                                               In February 2017, Gusto was ranked 37th in “Japan’s Best Domestic Brands                                       Kura Corporation
                                                                                                                                                                                                                     and first in ordinary income in Japan. Higher profitability owing to
                                               2017” published by Interbrand Japan, Inc., which evaluates brand value. This                         McDonald’s Holdings Japan                                        effective cost optimization is one of the Group’s features.
                                               marked the first time that the restaurant industry was selected based on an
                                                                                                                                                          Aim Services Co., Ltd.                                     * As Skylark applies international accounting standards, it uses pretax profit.
                                               evaluation of brand value improvement achieved through aggressive restaurant
                                               remodeling and menu enhancements, which we have practiced for several years.                   Source: Prepared by Skylark based on Nikkei MJ’s “43rd (FY2016) Japan Food Service Industry Survey”

3   Skylark Group integrated report 2016                                                                                                                                                                                                                            Skylark Group integrated report 2016   4
Integrated Report 2016 - Group - QUICK Disclosure
Get to
                          Aiming for another leap forward

                          to a “New Stage”
        know
       Skylark

                          For about nine years since 2008, Skylark has been working on a range of
                          reforms. Based on the strength developed during this time, Skylark entered
                          “STAGE 3” in 2017.
    Operating income                                                                                                                                                                                                                                            Revenue
    (Billions of yen)                                                                                                 Second consecutive                                                                                                                 (Billions of yen)
                                                                                                                        year of record-
     35                                                                                                                 breaking profit                                                                                                                              400

              Revenue
     30
                                                                                                                                           STAGE 3                                                                                                                   350
                                                                                                 Relisted on the
                                                                                               First Section of the                         Growth through restaurant expansion
                                                                                              Tokyo Stock Exchange
                                                                                                                                             With our ability to increase store openings having
                                                                                                                                                                                                                                                                     300
                                                                                                                                             significantly expanded due to brand development in
     25                                                                                                                                      STAGE 2, we accelerated store openings in response to
             Operating income                                                                                                                diversifying needs.

                                                            Bain Capital acquired a
                                                                                                                                             * At Skylark, we define a location where it can be determined that an investment can generate
                                                                                                                                               strong returns, leveraging our portfolio of brands, by analyzing data including national and                          250
                                                            98.7% equity interest in                                                           economic census of night-time and daytime populations, the number of passengers at train

     20                    Delisted from the
                                                               Skylark Co., Ltd.                                                               stations, and T-Card usage by neighborhood and district.

                          First Section of the
                         Tokyo Stock Exchange                                          STAGE 2                                                  Expansion of the number of restaurant openings
                                                                                                                                                · Open about 450 restaurants over the next three years                                                               200
                                                   STAGE 1                               Establish foundation                                   · Open more roadside locations, especially new brands
     15                                                                                      for growth
                                                         Structural
                                                          reforms                         Developed many specialty formats                      Enhance existing restaurants                                                                                         150
                                                                                          to meet diverse customer needs.
                                                     Abolished the brand-spe-
                                                                                          Strengthened procurement capabili-
                                                                                                                                                · Offer menus tailored to customer needs
                                                     cific company system.
                                                                                          ties by taking advantage of scale,                    · Implement cross-brand promotions
     10                                              Curbed excessive
                                                                                          improved processing and delivery
                                                     restaurant openings and                                                                    · Expand delivery and takeout service
                                                     established a manage-
                                                                                          efficiency at our commissaries, and
                                                                                                                                                                                                                                                                     100
                                                     ment system that enables
                                                                                          formed a solid foundation that is                     · Improve restaurant operation continuously
                                                                                          unique to Skylark.
                                                     prompt decision-making.

      5
                                                  Makoto Tani
                                                                                                                                                                                                                                                                      50
                                                   becomes
                                                   President

      0                                                                                                                                                                                                                                                                 0

     -5 2004         2005     2006         2007   2008     2009      2010       2011   2012       2013      2014       2015      2016             2017                                   2018                                     2019
5   Skylark Group integrated report 2016                                                                                                                                                                                              Skylark Group integrated report 2016   6
Integrated Report 2016 - Group - QUICK Disclosure
Our Corporate Philosophy

                                                                     Creating Richness with Value to Society
                                                                            Offering great-tasting food
                                                          at affordable prices with good service in our clean restaurants
                                                                           to as many people as possible

                                                                                                                 Brand
                                                                                                                Portfolio
                                                                                                                    →P19
                                                                                                               “Brand Portfolio”

                                                                                                                                                    Vertically
                                                                        Management                                                                 Integrated
                                                                           Style                                                                  Supply Chain
                                                                                →P11                                                                    →P23
                                                                              “Message                                                              “Foundation to
                                                                           from the CEO”                                                           Support Growth”
                                                                                                               Skylark’s
                                                                                                        5 Advantages

                                                                                                                                      Marketing/
                                                                                                                                     Data Analysis
                                                                                      Business Scale
                                                                                                                                      Capability
                                                                                              →P1                                  →P21 “Special Feature:
                                                                                     “Get to Know Skylark”                            Market Analysis
                                                                                                                                        Capability”
                                                                                                                                    →P29 “Marketing”

                                           CONTENTS

                                             1 Get to Know Skylark                                 19 Brand Portfolio                                          33 Interview with Indepen-
                                                                                                                                                                    dent Outside Directors
                                             9 Financial and Non-Financial                         21 Market Analysis Capability
                                                 Highlights
                                                                                                   23 Foundation to Support Growth                             37 Corporate Governance
                                           11 Message from the CEO
                                                                                                   24 1. Human Resources                                       42 Risk Management System
                                           16 Special Feature:                                                                                                 43 Board Members and
                                                                                                   27 2. Procurement
                                                 Skylark Takes on the                                                                                               Executive Officers
                                                 Challenge of “Expanding the                       28 3. Production/Distribution
                                                                                                                                                               45 Financial Section
                                                 Number of New Restaurant                          29 4. Marketing
                                                 Openings”                                                                                                     52 Company Information/
                                                                                                   31 Sustainability Initiatives                                    Shareholder Data

                                           Regarding the Publication of Integrated Report 2016
                                           This report has been published to communicate financial and non-financial information to shareholders, investors and stakeholders, as well as initiatives to
                                           raise corporate value over the medium to long term with the aim of inviting further dialogue.
                                             The editing of this report was performed by referencing the International Integrated Reporting Framework published by the International Integrated
                                           Reporting Council (IIRC). The Skylark Group has adopted International Financial Reporting Standards (hereafter, “IFRS”) and the content of this report is
                                           based on IFRS, unless otherwise noted.
                                             Based on its corporate philosophy of Creating Richness with Value to Society, the Company will continue to engage in dialogue with stakeholders
                                           through the enhancement and proactive use of its integrated report, and create business value.

7   Skylark Group integrated report 2016                                                                                                                    Skylark Group integrated report 2016          8
Integrated Report 2016 - Group - QUICK Disclosure
Financial1 and Non-Financial Highlights
    Consolidated Revenue2                                                                           Ratio of Sales by Brand                                                                    Dividend per Share4, Payout Ratio                                                                     Number of New Employees
                                                                                                                                                                                                                                                                                                (Number of    ■    New employees
     (Billions of yen)                                                                              Other restaurant                                                      Others 2.6%          (Yen)       ■ Dividend          Payout Ratio                                           (%)       Employees)         Female employment             Internal recruitment               (%)
    500                                                                                             businesses                                                           (9 billion yen)         40                                                                      38           50             200                                                                            100
                                                                                                    21.7%                                                                                                                                                                                                                                                          193      81.5%
                                                                                                                                                                                                                                                                     40.6%
    400                                                                                             (76.8 billion yen)                                                                                                                                                                40                                                                                             80
                                                                                  354.5                                                                                                          30                                                                                                  150
                                                                                                    Steak Gusto                      Revenue
                                                                                                    4.9%                                                                  Gusto 42.9%
    300                                                                                                                                 354.5                          (152 billion yen)                                                                                              30                                                                                             60
                                                                                                    (17.3 billion yen)                billion yen
                                                                                                                                                                                                 20                                                                                                  100
                                                                                                    Yumean 6.0%
    200                                                                                                                                                                                                                                                                               20                                                                                    32.7%    40
                                                                                                    (21.4 billion yen)

                                                                                                    Bamiyan 10.4%                                                  Jonathan’s 11.5%              10                                                                                                   50
    100                                                                                                                                                                                                                                                                               10                                                                                             20
                                                                                                    (36.9 billion yen)                                              (40.9 billion yen)

       0          2007 2008 2009 2010 2011 2012 2013 2014 2015 2016                                                                                                                               0          2014                         2015                           2016          0               0          2013      2014          2015        2016         2017   2018 target 0

    The year ended December 31, 2016 had a major impact on changes in the external environment and consumption trends, but major revisions adapted to                                          Based on favorable performance, the dividend per share for the year                                   To expand the number of restaurant openings from the year ending
    market needs that were made to the menus of our mainstay brands proved successful and sales steadily increased from the second half. In addition to our                                    ended December 31, 2016 increased by ¥5 over last year’s dividend of                                  December 31, 2017, we are aggressively hiring manager candidates and
    existing store strategy, consolidated revenue increased 1% year on year due to brand conversion to newly developed specialty restaurants and aggressive                                    ¥33. The dividend payout ratio remained stable, surpassing our target of                              internally recruiting highly capable human resources with staff experience.
    opening of new restaurants in front of train stations and shopping centers.                                                                                                                40%.                                                                                                  Furthermore, year after year we have increased the employment ratio of
                                                                                                                                                                                                                                                                                                     women by promoting workstyle reforms, such as in the personnel system,
                                                                                                                                                                                                                                                                                                     which accommodates diverse workstyles, and reduced late-night service.
    Adjusted EBITDA3                                                                                Consolidated Operating Profit                                                              Staff Aged 50 or Older and their Percentage                                                           CO2 Emissions per Restaurant in Manufacturing
                                                                                                                                                                                              (Number                                                                                                and Distribution
     (Billions of yen)                                                                              (Billions of yen)                                                                          of Staff) ■ Staff Aged 50 or Older             As a Percentage of Total Employees       (%)
      50                                                                          47.8                                                                                                         12,000                                                                     12.5%       14.0            (t-CO2)
                                                                                                                                                                                                                                                                                                          25
                                                                                                      40
                                                                                                                                                                                               10,000                                                                                 12.0
      40                                                                                                                                                                       31.2                                                                                       9,872                              20
                                                                                                                                                                                                                                                                                      10.0                                                                                   17.3
                                                                                                      30                                                                                        8,000
      30
                                                                                                                                                                                                                                                                                       8.0                   15
                                                                                                                                                                                                6,000
                                                                                                      20                                                                                                                                                                               6.0
      20                                                                                                                                                                                                                                                                                                     10
                                                                                                                                                                                                4,000
                                                                                                                                                                                                                                                                                       4.0
      10                                                                                              10
                                                                                                                                                                                                2,000                                                                                                         5
                                                                                                                                                                                                                                                                                       2.0

       0            2007 2008 2009 2010 2011 2012 2013 2014 2015 2016                                  0                                                                                               0       2013         2014              2015         2016            2017            0                  0      2012          2013           2014           2015        2016
                                                                                                               2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
                                                                                                                                                                                               Staff members aged 50 or older currently account for about 10,000 of our                              The Skylark Group has a vertically integrated supply chain and manages
    In the year ended December 31, 2016, continuous cost reductions and cost optimization to counteract inflationary effects such as personnel expenses, and                                   total staff of 100,000. As Japan’s demographics change, we are working                                energy at its restaurants, as well as in production and distribution at its
    selling, general and administrative expenses, in addition to sales growth, resulted in a ¥3.0 billion (6.8%) year-on-year increase in adjusted EBITDA.                                     to create an environment for the participation of many active seniors.                                commissaries. With the number of restaurants increasing, total CO2
    Consolidated operating income climbed ¥3.4 billion (12.4%).                                                                                                                                                                                                                                      emissions in production and distribution have been reduced by about
                                                                                                                                                                                                                                                                                                     20% per restaurant over the last five years.

    Net Income                                                                                      Gross Profit Ratio and Exchange Rate Fluctuations                                          Electricity and Water Usage per Restaurant5
     (Billions of yen)                                                                                (%)     ■ Gross Profit Ratio        Exchange Rate Fluctuations                          (kW/h)       ■ Electricity ■ Water                                                       (m3)
                                                                                18.2                  75
        20                                                                                                                                                                            (Yen)
                                                                                                                                                                                                600                                                                                    8.5
        15                                                                                                                                                                            130
                                                                                                                                                                                                580                                                                                    8.0
        10                                                                                            70
           5                                                                                                                                                                          120
                                                                                                                                                                                                560                                                                                    7.5
           0                                                                                          65
        -5                                                                                                                                                                                      540
                                                                                                                                                                                                                                                                                6.8    7.0
                                                                                                                                                                                      110
       -10                                                                                            60
                                                                                                                                                                                                520                                                                                    6.5
                                                                                                                                                                                      100
       -25
                                                                                                                                                                                                500
                                                                                                                                                                                                                                                                          489          6.0
       -30

               2007 2008 2009 2010 2011 2012 2013 2014 2015 2016                                        0 2015 2015 2015 2015 2016 2016 2016 2016 2017 0                                          0            2010     2011       2012       2013     2014       2015      2016            0
                                                                                                           1Q       2Q      3Q     4Q     1Q    2Q     3Q     4Q      1Q
    Due to higher revenue and cost optimization, net income increased ¥2.1                          Amid a drastically changing external environment that included foreign                     In addition to the introduction of LEDs at restaurants and energy manage-
    billion (13.5%) year on year, setting a record for the second year in a row.                    exchange fluctuations and sharply rising ingredient prices, we maintained                  ment backed by employee-wide efforts, the maintenance of equipment
                                                                                                    the gross profit ratio at around 70% throughout the year by controlling the                and installation of the latest energy-saving equipment has been per-
                                                                                                    menu mix, sales promotions, and optimizing the supply chain.                               formed by Group companies . As a result, during the seven-year period
                                                                                                                                                                                               from 2007, both electricity and water usage per restaurant have been
                                                                                                                                                                                               reduced by about 15%.
    Notes: 1.Up to 2011, prepared based on Japanese generally accepted accounting principles (J-GAAP). From 2012, prepared based on International Financial Reporting Standards (IFRS).         4.The Company carried out a 100-for-1 share split of its common stock on August 4, 2014. Equity per share attributable to owners of the Company and basic earnings per share are
    2.Sales do not include consumption tax. 3.Adjusted EBITDA = EBITDA + Loss on disposal of fixed assets + Impairment loss of non-financial assets + Advisory fees in accordance with the      calculated using the number of issued and outstanding shares after the share split assuming the share split came into effect at the beginning of 2012. 5.Figures are per restaurant
    BCPL management agreement (including periodic payments) + IPO and public offering-related expenses (including special bonus for initial public offering) + Amount associated with the       excluding the Group company restaurants of NILAX Inc., FLO JAPON, and Tomato and Associates Co., Ltd.
    change in accounting estimates due to qualified listing. (Supplementary) EBITDA based on J-GAAP = Operating profit + Depreciation + Amortization of goodwill + Amortization of
    long-term prepaid expense + Amortization of long-term prepaid expense (deposit) + interest on asset retirement obligations

9   Skylark Group integrated report 2016                                                                                                                                                                                                                                                                                                  Skylark Group integrated report 2016            10
Integrated Report 2016 - Group - QUICK Disclosure
Message from the CEO

                                            Leveraging our diverse brand portfolio,
                                            we will pursue new growth with a focus on
                                            store expansion

                                            Achieved record-breaking profit and                     Closed unprofitable restaurants, con-
                                            ventured into a further growth stage                    verted formats, and implemented dras-
                                            In the 2000s, Skylark overcame the greatest crisis it   tic business reforms
                                            had ever experienced since its founding and was         During the three-year period from 2017 through
                                            thereby transformed into a restaurant business          2019, Skylark plans to open about 450 new restau-
               Makoto Tani                  group with a stronger business foundation. With         rants, which is three times more than it opened
                           Skylark          the restaurant market remaining sluggish due to         over the last three years. I’m convinced that the
                    President and           continuing deflation and stagnant personal              biggest reason that we shifted to an aggressive
           Chief Executive Officer          consumption, Skylark has developed a structure          strategy to increase the number of restaurants was
                                            that is capable of achieving consistent and stable      to build a business foundation to swiftly and
                                            profit.                                                 precisely respond to changes in customer lifestyles
                                                   Results in 2016, on a consolidated basis, were   and in markets through the business structural
                                            revenue increased 1% to ¥354.5 billion and operat-      reforms we have taken so far.
                                            ing income climbed 12.4% to ¥31.2 billion, achiev-             In “STAGE 1” of reforms started in the
                                            ing double-digit growth, breaking the previous          second half of 2008, we closed about 400 unprofit-
                                            Company record.                                         able restaurants in about a year and a half while
                                                   Having assumed the position of CEO in            implementing brand conversion tailored to market
                                            August 2008, to solve the problems that had piled       changes at 400 restaurants. At that time, personal
                                            up, I worked on structural reforms to stop the          consumption cooled down due to the global
                                            outflow of cash by closing unprofitable stores,         financial crisis in September 2008, but fortunately
                                            brand conversion, and other measures as “STAGE          we had two brands with growth potential, Gusto,
                                            1.” From 2012 and after, I focused on laying the        which has had increasing customer support due to
                                            foundation for future growth by strengthening           its reasonable prices, and the newly developed
                                            existing stores, developing new formats, and other      Steak Gusto. In addition to converting unprofitable
                                            measures as “STAGE 2.”                                  and poorly performing restaurants to these brands,
                                                   Company performance followed a steady
                                            course to recovery and the setting of record profits
                                            in 2016 was no doubt the result of all Group
                                            employees working together to implement these
                                                                                                         Consider employees
                                            drastic business structural reforms. Based on these
                                            achievements and reform results, we positioned                and push through
                                            2017 as “STAGE 3” in which we will promote a new
                                            growth strategy centered on expanding the                          reforms
                                            number of restaurants.

11   Skylark Group integrated report 2016                                                                                Skylark Group integrated report 2016   12
Integrated Report 2016 - Group - QUICK Disclosure
Message from the CEO

     we reallocated the personnel of restaurants that                                                                        Centered on segments such as women,               Leveraging an efficient supply chain and
     closed by increasing sales at existing restaurants                                                               senior citizens, and families, the need for intangible   economies of scale, all brands provide
     and achieved profitability without having to reduce                                                              and experiential consumption*, which emphasizes          greater value than their price
     staff.                                                      Customer needs are                                   not only good food, but having an enjoyable time         To facilitate the new multi-brand store openings,
            In “STAGE 1,” we pushed through drastic
     internal organizational reforms. At the time, the
                                                               found in the restaurant                                in a restaurant and a cozy comfortable space, is
                                                                                                                      growing. For example, in the past, family restau-
                                                                                                                                                                               the supply chain, including the commissaries and
                                                                                                                                                                               distribution system, has been rebuilt into a system
     Company imposed a brand-based business                                                                           rants were mainly where customers enjoyed eating         that addresses the move to multiple brands.
     structure including Skylark, Gusto, and Bamiyan. At                                                              with their families, but recently they have become       Therefore, in line with its shift to a function-based
     a time when the restaurant market had been                                                                       venues for girls-only gatherings and places for          organization implemented in the “STAGE 1,”
     steadily expanding, we increased sales with an         formats because social conditions and people’s            senior citizens to gather and socialize to talk with     Skylark has pursued reforms at ten commissaries
     aggressive restaurant opening strategy. However,       lifestyles have drastically changed. Given that, we       friends about their hobbies, and more and more           nationwide. Traditionally, under a financially
     in today’s low-growth era, cannibalization of          thought that quickly responding to customer               customers are going there to enjoy themselves in a       independent business structure, each commissary
     internal brands over limited markets is a major        needs was of the utmost importance. In fact, I went       variety of ways. Additionally, the number of             was essentially a mechanism for producing ingredi-
     adverse effect. Therefore, we transformed our          to each of the Group’s restaurants by myself, and         customers who spend their private time eating out        ents for a specific brand only, but this was changed
     internal organization into a functional organization   while talking to managers and staff and studying          in restaurants is increasing.                            to a system that produces ingredients for multiple
     and tried to avoid cannibalization by developing an    the restaurants’ interiors, I experienced for myself            To meet these intangible and experiential          brands while flexibly rearranging the production
     optimal Companywide and regional restaurant            the greater-than-expected changes in the food             consumption needs, we developed MUSASHI NO               line in a single commissary. Likewise, we changed
     opening strategy and with sales promotion that         needs of customers and understood how they                MORI COFFEE to provide a relaxing and comfort-           distribution from the traditional brand-specific
     transcends the brand framework. We also pursued        spend their time in restaurants.                          able space surrounded by greenery. The                   delivery system, to an area-specific delivery system
     cost reductions and optimization of human                     For example, in the restaurant market, while       above-mentioned Syabuyo, which places a premi-           that transcends the brand framework. As a result, it
     resources by integrating the development, sales,       preference for low-price is well established, the         um on fresh vegetables and safe and secure meat,         was possible for one delivery truck to efficiently
     human resources and general affairs divisions,         number of people who will pay a little more for a         is another example of a format developed from the        visit multiple restaurant brands near each other
     which until now had been dispersed, into one.          menu with one’s favorite dishes or a menu with            standpoint of intangible and experiential                and major distribution cost reduction benefits were
                                                            unique and popular items is increasing. To meticu-        consumption.                                             obtained.
                                                            lously meet customer needs that are becoming                    With the development of these new formats,                At Skylark, we provide “menus worth more
     Build diversified brand portfolio that                 increasingly customized and personalized , the            Skylark’s brand portfolio offers a rich lineup that      than their prices” across all brands by utilizing our
     responds to the need for personaliza-                  all-purpose format, which has been Skylark’s              can meet diverse customer needs, and based on            efficient supply chain and low-cost procurement
     tion and segmentation                                  mainstay, by itself has limitations. It is necessary to   our research and analysis, the room for store            capability that leverages our nearly 3,000 restau-
     Next, in “STAGE 2,” we set out to enhance existing     develop an even greater variety of formats that are       openings has expanded to reach 2,300 locations.          rants nationwide. This supply chain and our econo-
     stores first. In this, we were especially committed    more unique and highly specialized.                       As “STAGE 3,” we will open new restaurants that          mies of scale should be a major advantage, not
     to the effective utilization of data. Combining the           The format that we enhanced from that point        are the optimal brand tailored to the market             only to our family restaurants, but in developing
     T-Card and POS (point-of-sale information man-         of view was the specialized format, which includes        characteristics of each region and customer needs,       more specialty brands in the future.
     agement) data, we could accurately understand          the shabu shabu restaurant Syabuyo, the yakiniku          taking full advantage of this multi-brand structure.
     what kind of customers are coming to our restau-       restaurant Jyu-Jyu Karubi, and the Japanese food          As for the location of these new restaurants, we
     rants, their frequency, what they are ordering and     and café fusion restaurant Chawan. Targeting              plan to focus on opening new brands along
     what the average spend is per customer. Based on       customers who want to eat inexpensively, but have         roadsides as well as in front of train stations and in
     this detailed analysis of consumer trends, we have     a limited time, such as company employees and             shopping centers.
     redesigned our restaurants including menu devel-       drivers, we developed Yumean Shokudo and                                                                                Making our business
     opment and interior remodeling, offered sales          Tonkaratei, a new format of specialty restaurants
                                                            with a low average ticket price. In the United
                                                                                                                      *Intangible and experiential consumption refers to
                                                                                                                      consumer pursuit of intangible factors such as a
                                                                                                                                                                                    foundation a driving
     promotions, and subsequently increased sales at
     existing restaurants and enhanced profitability.       States, such restaurants are called “fast casual”         better quality of life and interesting experiences as           force for growth
           At the same time, we started to develop new      and are currently the fastest-growing category.           opposed to the pursuit of material possessions.

13   Skylark Group integrated report 2016                                                                                                                                                            Skylark Group integrated report 2016   14
Integrated Report 2016 - Group - QUICK Disclosure
Message from the CEO

                                                                                                                                                               Special
                                                                                                                                                               Feature
           In this way, growth through an increase in      promoting more opportunities for education and
     restaurant openings, positioned as “STAGE 3,” is a
     strategy that is backed by a brand portfolio
                                                           self-development by introducing more flexible
                                                           workstyles and e-learning. The promotion of                      Skylark Takes on the Challenge of
                                                                                                                     “Expanding the Number of
     capable of meeting diverse customer needs as well     diversity is another important theme. Not only are
     as a powerful and flexible business foundation that   we focusing on appointing female managers, we

                                                                                                                     New Restaurant Openings”
     supports multi-brand restaurant development. I        are also employing senior citizens by extending the
     am confident that it will be the driving force for    retirement age to 65 and introducing a reemploy-
     new growth at Skylark.                                ment system that allows applicants to continue
                                                           working until the age of 70. We are also devoted to    Based on its foundational strength that is reinforced in stages 1 and 2, Skylark will take on the
                                                           improving employee health and have been certi-
                                                                                                                  challenge of dramatically expanding the number of new restaurant openings from 2017 to 2019.
     Proactively pursuing “workstyle                       fied by the Health and Productivity Management
                                                                                                                           From the outline of the plan and the foundational strength that supports it,
     reforms,” we support both a work-life                 Organization (White 500) and have received the
     balance and growth strategy                           Kurumin mark as an excellent company that                            the two forces that will drive restaurant openings are introduced.
     The securing of human resources is an important       supports child rearing. We will create an environ-
     issue for actualizing this new growth strategy. At    ment where it is easier for employees to work,                               Expand the number of restaurant
                                                                                                                                                                                       →P.17
     Skylark, which has developed businesses based on      promote a work-life balance, and achieve our                                   openings three times faster
     table service for many years, there are many          growth strategy.
     actively working management-level personnel with
     extensive table service skills and knowhow. Howev-
     er, to aggressively expand new restaurant open-       Continue “Creating Richness with Value
                                                                                                                                                                            Support optimal
     ings, we must secure a greater number of compe-       to Society” in the restaurant industry                                       Expand the room for
                                                                                                                                                                          restaurant openings
                                                                                                                                         restaurant openings
     tent employees who will be future manager             Since opening Japan’s first family restaurant (first
                                                                                                                                       Brand Portfolio                  Market Analysis
     candidates, as well as staff who are service          Skylark) in 1970, we have been striving to “Create
                                                                                                                                                                          Capability
     minded. Therefore, we have taken steps to             Richness with Value to Society,” which is also our                                 →P.19                            →P.21
     enhance employee and staff recruitment while          corporate philosophy, with the mission of “Offer-
     improving employee satisfaction and retention rate    ing great-tasting food at affordable prices with
     through “workstyle reforms.”                          good service in our clean restaurants to as many
            As one way to address this, we have signifi-   people as possible.” After nearly half a century,
     cantly reduced late-night work hours at restaurants   restaurants including family restaurants have
     to alleviate the burden on employees. We are also     become indispensable for people to have a good
                                                           time with their families and friends and to lead a
                                                           rich life. Since the Great East Japan Earthquake,
                                                           the social function of the restaurant industry has
                                                           grown in importance as we rediscover the value of
          Achieve increase in                              the bond between people.
                                                                  As a pioneer in the restaurant industry,
        store openings through                             Skylark will strive to develop new brands with value

           workstyle reforms                               and aggressively open attractive new restaurants
                                                           that bring a smile to every customer’s face. Thank
                                                           you for your continued support and cooperation.

15   Skylark Group integrated report 2016                                                                                                                                                 Skylark Group integrated report 2016   16
Integrated Report 2016 - Group - QUICK Disclosure
Special Feature            Skylark Takes on the Challenge of “Expanding the Number of New Restaurant Openings”

      Three-times Faster than the Last Three Years
                                                                                                                                                                                                                                                                            Restaurant Location
      Expand the Number of                                                                                                                                                                                                                                  Point 2
                                                                                                                                                                                                                                                                            Returning our focus to
                                                                                                                                                                                                                                                                            roadside restaurants

      New Restaurant Openings                                                                                                                                                                                                                                               Roadsides, which can effectively uti-
                                                                                                                                                                                                                                                                            lize our distribution network centered
                                                                                                                                                                                         Existing brand                                        New brand                    on 10 nationwide commissaries, have
                                                                                                                                                                                                                         Shopping                                           long been considered excellent res-
                                                                                                                                                                                                                          centers                                             taurant locations by Skylark. With
                                                                                                                                                                                                                                                                                each brand’s earnings base
                                                                                                      Point 1                                                                                                                                                                    reinforced by the benefits of
                         Existing brand                                   New brand                                                                                                                                                                                               scale, we have decided to

                                                                                                     Expand the Number of                                                                                                 2017-2019                                                refocus. In addition to restau-
                                                                                                                                                                                                                                                                                    rants in front of train stations,

                                                                                                                                                                                                                           450
                                                                    Roadside
                                                                                                     New Restaurant Openings                                                                                                                                                         which had been expanding
                                                 2014-2016                                                                                                                               In front of                                                                                 until last year, we plan to

                                                144
                                                                                                                                                                                       train stations                                                                                accelerate restaurant open-
                            Shopping                                                                 Open 450 new restaurants leveraging                                                                                                        Roadside
                             centers                                                                 multiple brands                                                                                                                                                                 ings at shopping centers,
                                                                                                                                                                                                                                                                                     especially our chawan brand.
                                               Restaurants
                                                                                                     We will accelerate the pace of restaurant open-
                                                                                                     ings, which totaled 144 over the last three years.
                                                                                                                                                                                                                          Restaurants
                                                                                                     Our plan is to open around 450 new restaurants
                                                                                                     nationwide, 100 in 2017, 150 in 2018, and 200 in                                                                                                                                          Point 3
                                                                                                     2019, which is three times more than the past
                                                        In front of
                                                                                                     three years. Leveraging its multiple brands, a
                                                      train stations
                                                                                                     Skylark strength, we will open a variety of                                                                                                                              Restaurant Brands
                                                                                                     restaurants of multiple brands with different
                                                                                                     formats in the same region in marketable areas.
                                                                                                                                                                                                                                                                              to be Opened
                                                                                                                                                                                                                                                                    Newly developed specialty brand
                                                                                                                                                                                                                                                                  to be opened according to location
       Thus far, the Group has increased its profit margins and achieved record-breaking profits amid
                                                                                                                                                                                                                                                              Skylark has various new brands besides family
       flat sales thanks to business structural reforms and rigorous cost optimization. Now that the                                                                                                                                                          restaurants. Leveraging numerous specialty
       business foundation has been laid, it is essential that we expand the volume of sales by opening                                                                                                                                                       brands developed up to Stage 2, such as
       new restaurants for additional growth. In a favorable environment marked by a rising Engel’s                                                                                                                                                           Syabuyo, where you can enjoy all-you-can-eat
       coefficient and increased spending on dining out by young people, we will increase business                                                                                                                                                            shabu-shabu with family and friends, and
       profitability by aggressively opening new restaurants tailored to each area’s needs.                                                                                                                                                                   MUSASHI NO MORI COFFEE, where you feel
                                                                                                                                                                                                                                                              like you’re in a resort, we will expand open-
                                                                                                                                                                                                                                                              ings according to location.
        DATA             Domestic restaurant market conditions support expansion of the number of restaurants
       Customers seeking                 Percentage of food and beverage expenses                         Japan is the country with the highest individual                      Domestic restaurant market has been declining since its peak,                         Market size expected to expand
       food quality and                  to household consumption expenditures (%)                        daily food expenditure                                                but has moderately expanded recently
                                          26                                                                                                                                                                                                                          (%)
       a better dining                                                                                    Size of restaurant market              Dining out expenditure         Restaurant market (trillion yen)                                                               ■Dining out ■Home meal ■Eating
                                          25                                                                                                                                                                                                                          80
       experience have                                                                                    (trillion yen)                         per citizen (10,000 yen)       30                                                                                                          replacement at home
                                          24
       increased and the                                                                                   53                                     17                                                                                           Moderately
       percentage of spending             23                                                                        51                                     16
                                          22                                                                                                                                                                                                   expanding
       on food has grown
                                          21                                                                                                                                    25                                                                                    60
                                          ~                                                                                                                                                                                                                                                                            26.0
                                          ~                                                                                 3rd                                                                                                                                                   23.5               25.3
                                             1985 1990 1995 2000 2005 2010 2016                                            in the
                                         Source: Nihon Keizai Shimbun Inc. (February 17, 2017)
                                                                                                                           world
                                                                                                                                                                                20
       The young generation              Dining Out Expenses (%) *                                                                                                                                                                                                    40           5.7               6.4               6.8
                                                                                                                             25
       spends more on                    30
       restaurant dining and                                30s in 2015                                                                                           7
                                                                                                                                                                                15
       therefore expenses for            20                          40s in 2015
                                                                                                                                      15
                                                                              50s in 2015
       dining out are expected                                                                                                                                           4                                                                                            20          36.9               36.2              38.1
       to increase overall               10                                            60s in 2015
                                                                                                                                                                                10
      * Calculated as follows:
      General dining out for a working    0
      household of two or more
      people ÷ food expenses                  20s        30s        40s         50s        60s                                                                                                                                                                          0         2010              2015         2020(Estimate)
                                                                                                          China     US     Japan Brazil         Japan      US    Brazil China   0 1990
                                         Source: Prepared by Skylark based on the Family Income                                                                                                        1995              2000           2010          2015
                                         and Expenditure Survey (Statistics Bureau, Ministry of          Source: Prepared by Skylark based on Euromonitor etc.                                                                                                        Source: Prepared by Skylark based on materials from
                                                                                                                                                                                Source: Japan Food Service Association                                                the Mizuho Bank Ltd. Industry Research Department
                                         Internal Affairs and Communications)

17    Skylark Group integrated report 2016                                                                                                                                                                                                                                        Skylark Group integrated report 2016            18
Special Feature     Skylark Takes on the Challenge of “Expanding the Number of New Restaurant Openings”

                              Brand Portfolio
         Restaurant
       opening support                                                                                                                                                          A brand portfolio that fulfills a variety of needs
          capability

             1
                                                                                                                                                                                                               Average unit price:
                                                                                                                                                                                                               around ¥1,500
                              Expands Room for Restaurant Openings

                                               Diverse brands that hold the key to expanding
                                               new restaurant openings.
                                               Having brands that meet various needs leads to expansion
                                               of locations where restaurants can be opened.
                                               The Skylark Group has developed diverse brands that cover the low- and mid-price
                                               range in multiple categories including Japanese, Western, Chinese, and Italian
                                               cuisines, supporting a wide range of customers that make up the majority of                      ALL-                                                                                                                               Specialty
                                               domestic consumers. With this diversity of brands, we can now appropriately                  PURPOSE*                                                                                                                               restaurant
                                               allocate brands to match the distinctive characteristics of the locations where new
                                               stores are opened.
                                                      Because the external environment and consumer needs are constantly
                                               changing, detecting and understanding those changes and quickly developing
                                               brands to match the market is essential. From 2015 to 2016, we developed brands
                                               that are highly specialized and expanded our brand portfolio to include MUSASHI
                                               NO MORI COFFEE, Yumean Shokudo, and Tonkaratei.
      Haruyoshi Sakita                                To further enhance format development, we established a specialty format
      Managing Director                        development team in the Marketing Division in 2016. Today, consumer values are
      of Marketing Division                    shifting from “material consumption,” which emphasizes the value of material
                                               ownership, to “intangible consumption,” which values special times and experi-
                                               ences. We will accurately monitor this new demand and meet customer needs that                                                                                   Around ¥500
                                               are diversifying and segmenting.
                                                                                                                                           * A generic term for a business category that offers a comprehensive menu of Japanese, Western, and Chinese cuisines in response to a variety of motives
                                                                                                                                           including period of time and purpose.

                                          !!
                                      NEW       New Brands that Meet Customer Needs

                                                                                        A specialty restaurant                                     TOPICS
                       Create together with your family
                                                                                        that is a cut above
                       A buffet-style restaurant specializing in shabu-
                       shabu that offers exceptional value where you can                A specialty restaurant where you can enjoy a            Community café that is popular with the whole community
                       freely choose your favorite meat, vegetables,                    varied and high-quality menu including pork,
                       broth, and dipping sauce.                                        beef, and prawn cutlet in a comfortable and
                                                                                        stylish setting.
                                                                                                                                                Since opening its first shop in Yokohama City’s Minami-ku in March
                                                                                                                                                2015, MUSASHI NO MORI COFFEE has been popular with customers
                                                                                        Grab a quick bite on the way home or                    and has greatly exceeded expectations. In June 2016, the Toyama
                       An exceptional resort-like experience                            on the way out                                          Kyodo restaurant was opened in Toyama Prefecture, the first restau-
                       A café designed in the image of a high mountain                  Developed to meet the need for restaurants in           rant outside the Tokyo metropolitan area, giving us roughly 10 shops
                       resort that provides a space where you can relax                 front of train stations and in urban areas under        centered in the Kanto area. The brand concept is “All day living – in a
                       amid different designs and atmospheres in each                   the concept of everyday Japanese food that can
                       area, and have coffee, specially made pancakes,                  be enjoyed in a casual atmosphere. Enjoy Japa-
                                                                                                                                                comfortable leisurely space –“. In a spacious shop interior that makes
                       and other items.                                                 nese noodles (udon), lunch specials, and a drink        you feel that you are in a coffee shop in a high mountain resort
                                                                                        menu.                                                   furnished with comfortable sofas, chairs and magazine racks. Here
                                                                                                                                                you can enjoy a menu rich in variety such as hand-drip brewed
                       Expansion of restaurants mainly in                               Experience high-quality                                 specialty coffee and special pancakes that can only be had at
                       shopping centers                                                 Hawaiian resort dining in Japan                         MUSASHI NO MORI COFFEE cafés. As a community café where you
                       A restaurant with a casual atmosphere and a                      “La” is Hawaiian for “sun,” and “ohana” is              can leisurely spend your time as you like, in the morning, afternoon or
                       nutritionally balanced menu to meet the needs of                 Hawaiian for “family” or “bond.” The restau-
                       women who want to eat tasty and healthy food at                  rant offers community dining where customers            night, by yourself, or with your family or a group, it aims for wide                        MUSASHI NO MORI COFFEE
                       a leisurely pace.                                                can enjoy Hawaiian food and drink.                      popular community support.

19    Skylark Group integrated report 2016                                                                                                                                                                                                                 Skylark Group integrated report 2016       20
Special Feature      Skylark Takes on the Challenge of “Expanding the Number of New Restaurant Openings”

                                                                                                                                              COLUMN

                              Market Analysis Capability
         Restaurant
       opening support
          capability
                                                                                                                                             Utilizing Data from Market Analysis,
             2                that Supports Optimal Restaurant Openings                                                                      we Seek to Expand Area Revenue
                                                                                                                                             In the growth of existing restaurants as well
                                             Detailed market analysis is essential when opening                                              as new restaurants, we are executing policies
                                             a restaurant. Selecting the most appropriate brand and                                          and measures that leverage market data.
                                             building the restaurant based on data leads to
                                                                                                                                                                                                               Verify the status of all restaurants in the area and consider
                                             a successful opening.                                                                                                                                             measures to improve the entire area’s profitability

                                             The Restaurant Development Division is responsible for restaurant remodeling,                                        Brand conversion that seeks optimal placement in
                                             brand conversion, as well as securing land and buildings, brand selection, and                  Brand                the Group’s restaurant areas tailored to local needs
                                             restaurant design. We have significantly reinforced staff in preparation for the rapid          Conversion           The brands developed by the Skylark Group have a basic restaurant structure that is
                                             expansion of the number of restaurants. About 50 staff are continuing to search
                                             nationwide, from Hokkaido to Okinawa, for candidate locations and properties for                                     common within the Group, so it is possible to convert restaurants to other brands accord-
                                             new restaurants.                                                                                                     ing to local needs and other factors. Because Skylark owns diverse brands, it can strategi-
                                                     When opening a new restaurant, it is important to decide comprehensively                                     cally select the appropriate brand at each location according to market changes, and the
                                             based on a variety of factors such as location, floor space, market conditions of the                                range of those selections is also expanding due to recent new brand development.
                                             area, and the effect on existing Group restaurants in the neighboring area, and then                                        The distinctive feature of the Skylark Group’s brand conversion lies in “optimal area
                                             select the most suitable brand. What most differentiates Skylark from its competi-                                   placement” that reduces competition within the Group and maximizes the market’s
                                             tors is its ability to select the most suitable brand that can be expected to reliably                               potential by reviewing the placement of Group restaurants within an area, and not one
      Shigeto Kadowaki                       generate revenue from among its many brands within the location parameters, such                                     restaurant alone. In 2016, 84 restaurants were converted. This generated a high investment
      Managing Director                      as a Japanese brand in areas where there is an over concentration of Western-style                                   effect because conversions were based on detailed analysis. For example, MUSASHI NO
      of Store Development Division          restaurants.                                                                                                         MORI COFFEE, which was converted and opened in Toyama Prefecture in 2016, saw a
                                                     Underpinning this is Skylark’s ability to analyze markets and customers.                                     sales increase effect of about 340% compared to before the conversion, and surrounding
                                             Immediately after developing a new brand, we verify it with a trial restaurant that                                  area sales increased 7.6%.
                                             has undergone brand conversion from an existing restaurant, leading to the
                                             development of an optimal brand through the collection of “living data.”
                                                     Meanwhile, we are researching customer segment assumptions based market                                      Increase Customer Traffic through Remodeling (renovating restaurant
                                             data from surrounding areas and on big data collected from existing restaurants. By                                  interiors and exteriors) 316 restaurants remodeled in 2016
                                                                                                                                             Remodeling
                                             combining this data with each brand’s data, we consider the most suitable brand. In
                                                                                                                                                                  In accordance with market changes, such as the increase in the senior citizen and women
                                             addition, by analyzing such factors as the average number of people who come to
                                                                                                                                                                  customer segments, Skylark is aggressively remodeling (renovating restaurant interiors
                                             use the restaurant at one time (for example, do individuals or groups of two or three
                                                                                                                                                                  and exteriors) so that it can provide customers with a comfortable space. We have remod-
                                             people most frequently enter the restaurant at one time) and what are its peak
                                                                                                                                                                  eled at a pace of about 300 restaurants annually since 2013, focusing on revamping
                                             hours, we decide the restaurant’s design, such as the proportion of individual
                                             seating versus booth seating, and the amount of space to devote to the smoking                                       designs tailored to concept by, for example, constructing separate smoking and
                                             section. This helps us create restaurants that rank high in customer satisfaction.                                   non-smoking sections to accommodate increasing demand and improving the table ratio
                                                                                                                                                                  to accommodate changes in customer segments. In 2016, 316 restaurants were remod-
             Data Collection                                         Analysis                               Restaurant Opening                                    eled and Gusto achieved an almost 4% sales increase than before remodeling. In recent
                                                                                                                                                                  years, we began working on layouts that ensure private spaces to meet various needs,
        Market data is collected about           A specialized division analyzes the market data and        Restaurant brands that match
        the conditions of surrounding                    considers the most suitable brand                 the analysis results are opened                        such as for rising banquet and larger party demand.
              restaurant usage
                                                                                                                                                                                                                                                   After remodeling
                                                                                                                                                                                                                                                   Changed to a seating
                                                                                                                                                                                                                                                   arrangement that
                                                                                                                                                                                                                                                   assumes customers will
                                                                                                                                                                                                                                                   visit in small groups in a
                                                                                                                                                                                                                                                   café-like atmosphere.

                                                                                          Synergistic
                                                                                       effects with our                                                           Before remodeling
                                                                                     other brands in the                                                          Family seating is most common
                                                                                      surrounding area
                                                                                      are also analyzed

21    Skylark Group integrated report 2016                                                                                                                                                                                           Skylark Group integrated report 2016       22
Foundational
                                                                                                                           strength

                                                                                                                              1         Human Resources

                                                                                                                              “People” Hold the Key to the Success of
                                                                                                                              our Restaurant Opening Strategy
                                                                                                                              Over the next three years, Skylark plans to open about 450 restaurants
                                                                                                                              nationwide, approximately three times that of the last three years. Secur-
                                                                                                                              ing human resources is therefore an urgent task. To achieve this restaurant
                                                                                                                              opening plan, we need to hire about 100 more people than we now do

          Foundation to Support Growth                                                                                        each year. Naturally, the “quality” of human resources is important, and
                                                                                                                              because we are committed to our hiring standards that require
                                                                                                                              “hospitality-minded people,” we will actively promote full-time
                                                                                                                              employees from our staff.
       Skylark’s strength is its vertically integrated supply chain that it operates consistently from
                                                                                                                                     To retain personnel who can provide high-quality service, we
       procurement to delivery. Our human resource and marketing capability also supports this.                               significantly reduced night time work in 2017. Although sales may
                                                                                                                              decline, we expect profit margins can be secured by increasing the
                                                                                                                              turnover rate during peak hours and improving service quality by transfer-              Minoru Kanaya
                                                                                                                              ring veteran staff, who had worked night shifts, to work lunch and dinner               Managing Director of
                                                                                                                              time. The acquisition and retaining of high-quality human resources will                Human Capital Management
                                  Human resources                     Marketing                                               lead to the success of our plan to expand the number of restaurants.
                                                                                                                                                                                                                      Division
                                            →P.24                          →P.29

                                                                                                                        Initiatives to Procure Human Resources
                          Skylark’s Vertically Integrated Supply Chain
                                                                                                            Creating    Strengthening Staff Recruitment and                            of 4, 6, 8, 10, and 12 hours, enables free workstyles to
        Procurement        Inspection         Production           Distribution    Preparation   Service     Richness   Employee Promotion                                             accommodate busy- and off-periods of work. Mean-
                                                                                                           with Value   To secure competent human resources, Skylark is                while, we have taken steps to curb transfers and moves,
                                                                                                           to Society   actively promoting staff to full-time employee status. To      which are a heavy burden on employees, and reduced
                                                                                                                        communicate the appeal of working at Skylark with the          employee moves by 30% year on year in 2017.
                                                                                                                        aim of having them become full-time employees, we
                                                                                                                        have held staff-only dinner parties and seminars for job
                                                                                                                        seekers, and expanded the number of restaurants where
           →P.27             →P.31                         →P.28                                                        interviews are set by the call center (instead of by
                                                                                                                        managers) to all restaurants to reduce the burden on
                                                                                                                                                                                              TOPICS
                                                                                                                        managers in hiring of staff.
                                                                                                                                  We are also considering the introduction of a            Holding Job Search Startup Seminars
                                                                                                                        staff support system to assist with work at multiple
                                                                                                                                                                                           At Skylark, we held Job Search Startup Seminars in
                                                                                                                        restaurants, a registered staff system to promote flexible
                                                                                                                                                                                           January and February of this year to assist approxi-
                                                                                                                        workstyles, and a new system that involves headquar-
                                                                                                                                                                                           mately 5,000 part-time staff, who work at Group
                                                                                                                        ters’ support in the hiring of foreign nationals and in
                                                                                                                                                                                           companies and commissaries, in their job searching
                                                                                                                        initial training.                                                  activities. At this seminar, we held lectures on how to
                                                                                                                                                                                           effectively sell yourself at job interviews, provided free
                                                                                                                        Promoting Various Workstyles to                                    aptitude tests to determine eligibility for admission to
                                                                                                                        Accommodate Lifestyle                                              exams, and feedback. We also held information
                                                                                                                        To secure diverse human resources, we have upgraded                exchange dinner parties where attendees can freely
                                                                                                                        our system that permits workstyles that accommodate                talk with staff associates of nearby restaurants, senior
                                                                                                                        individual lifestyle. For example, our “modified working           employees, and personnel managers.
                                                                                                                        hour system,” which allows the combining of work shifts

23   Skylark Group integrated report 2016                                                                                                                                                                         Skylark Group integrated report 2016   24
Foundational
         strength

           1          Human Resources
     Promoting Work-Life Balance to
     Encourage Employee Retention

     We seek the Group’s further growth through the               Prohibit Smoking Campaign                                     we are offering a two-month online support program to           introduced into all restaurant brands and used during
     promotion of workstyle reforms and a workplace               Since 2014, we have been conducting a campaign to             help them quit, and long-term four-month email                  work and training.
     environment where employees are physically and               prohibit smoking with the goal of reducing the smoking        support thereafter free of charge.                                     Not only did the iPads make it easy to search the
     mentally healthy and can work energetically.                 rate throughout the Company. In addition to providing                                                                         formerly paper-based manual, we can now browse the
                                                                  support tools such as nicotine patches and nicotine           BMI Improvement                                                 latest version of the manual online. Since the complicat-
     Reducing Late-Night Work                                     gum to those who wish to use them, beginning in 2017,         Skylark is promoting public awareness about BMI, which          ed work of updating the
     In December 2016, we decided to shorten late-night                                                                         is said to have a significant causal relationship with          manual is no longer
     working hours with the goal of enhancing the work-life             TOPICS                                                  lifestyle diseases, and efforts to improve BMI figures. In      required, work has
     balance of employees by reducing those hours where                                                                         addition to offering courses by nationally registered           become more efficient.
                                                                     Obtaining External Certification                           dieticians for those who require improved BMI figures,
     the burden to labor management is high. Targeting 70%
                                                                     in Labor Environment                                       we are making a video digest of the course available for
     of our restaurants that are open late at night between
                                                                     Health and Productivity Management Organization            online view.                                                                                  Introduction of the iPad has made
     the hours of 2:00 am and 5:00 am, in sequential order,
                                                                     Recognition Program (White 500)                                                                                                                          consistency in training possible
     from January to April 2017, we reduced their hours by
                                                                     Believing that employee health is our number one           Introducing Health Management App
     having them close at 2:00 am and open at 7:00 am.
                                                                     priority, Skylark is committed to promoting good health
            The market environment has also changed, and                                                                        In July 2016, we introduced KenCoM, a health manage-                  TOPICS
                                                                     under executive management’s leadership, to the mental
     the number of late-night customers has been declining                                                                      ment app. The app is an information management tool
                                                                     and physical health management of employees, and to                                                                           Streamlining Restaurant Operations with IT
     for the last few years. In 2012, we re-examined restau-                                                                    that can provide individual information based on health
                                                                     creating a comfortable workplace environment. In
     rants with very long operating hours, and in 2013,              recognition of this effort, in February 2017 we were
                                                                                                                                check-up results and can help raise awareness about                In addition to procuring and retaining human resources,
     conducted routine reviews, which led to reducing the                                                                       disease after health check-up.                                     we have focused on reducing restaurant workload
                                                                     certified by the Health and Productivity Management
                                                                                                                                                                                                   through the introduction of IT including restaurant work
     operating hours of about 600 restaurants by an average          Organization Recognition Program (White 500) as an
                                                                                                                                Continuation of Welcome Program                                    terminals, POS registers, and order entry systems, and we
     of two hours. Although sales decreased in 2017 due to a         excellent company that practices health and productivity
                                                                                                                                                                                                   are providing higher quality service to customers.
     major reduction in hours, we have improved service by           management in cooperation with insurers.                   As the Skylark Group grows, the active participation of
                                                                                                                                                                                                           So far, we have reduced the burden of inspection
     transferring employees on late-night shifts to work                     The Health and Productivity Management Organi-     staff familiar with restaurant operations is essential. It is
                                                                                                                                                                                                   of automatic change machines, worked on restaurants’
                                                                     zation Recognition Program was established by the          important to enhance education after joining the
     during other hours such as morning, lunch, tea and                                                                                                                                            output of work schedules by improving the restaurant
                                                                     Ministry of Economy, Trade and Industry together with      company so that staff will become regular employees in
     dinner time, and increased the number of customers.                                                                                                                                           operation system, and established automatic setting of
                                                                     Nippon Kenko Kaigi (comprised of leaders of the            the future. We have established a unique training                  legal holidays for staff.
                                                                     business community, medical-related organizations, and
                                                                                                                                system where managers and trainers provide adequate                        In 2015, we initiated a project to move to a new
                                                                     local governments) in 2016. “White 500” is a name that
                                                                                                                                training so that staff who have just joined the restaurant         system infrastructure, comprised of a restaurant system
                                                                     refers to major certified companies in the corporate
                                                                                                                                can quickly get accustomed to their work, feel job                 supporting core restaurant tasks, such as order entry and
                                                                     sector. A total 235 companies were selected in the first
                                                                     certification.
                                                                                                                                satisfaction, and continue working without leaving.                attendance management, and a system linking to that,
                                                                                                                                Instituted in 2012, the Welcome Program introduced an              constructed at the new data center (DC), and to revamp
                                            Improved service in                                                                 orientation to help eliminate employees’ sense of                  restaurant databases. In June 2016, we integrated our
                                            other time slots by                                                                 isolation that is felt after first joining a company. We           system, which bad been dispersed in four locations
                                            reducing late-night                                                                                                                                    throughout Japan, into one location and started full-scale
                                            operation                                                                           created a training manual that covers the basics of work
                                                                                                                                                                                                   operation. Shifting to a new system infrastructure that
                                                                                                                                to avoid an education and training deficiency, and
                                                                                                                                                                                                   utilizes the latest databases, machines, and servers,
                                                                                                                                established a three-day training period after joining the
                                                                                                                                                                                                   increased the restaurant system’s processing perfor-
     Promoting the Health and                                                                                                   company. Today, 5 years after its introduction, training is
                                                                                                                                                                                                   mance by 300% to 400%. Operational efficiency also
     Productivity Management Project                                 Kurumin Mark                                               conducted to impart a proper understanding so that the             increased, for example, the time required to transmit
                                                                     Promoting the acquisition of                               instruction provided by managers and trainers is
     In 2016, Skylark established the health and productivity                                                                                                                                      massive amounts of master data to restaurants was
                                                                     consecutive holidays, childcare                            uniform.
     management project with the goal of promoting                                                                                                                                                 reduced from 11 hours to 1.5 hours.
                                                                     leave for men, reduced working
     employee health and improving the workplace environ-            hours for childcare, the Skylark
     ment, and we conduct a wide range of initiatives on an                                                                     Introduction of iPads
                                                                     Group received the Kurumin
     ongoing basis.                                                                                                             Beginning from 2014, we introduced tablet PCs at
                                                                     mark from the Ministry of Health,
                                                                     Labour and Welfare of Japan in                             Jonathans with the goal of promoting staff training and
                                                                                                                                                                                                                                          We plan to migrate
     Promoting Health Check-Ups                                      February 2016 in recognition of its support for child      streamlining restaurant operations, and conducted trials                                                  all internal business
     Skylark urges staff and supervisors to ensure that they         rearing based on the Act on Advancement of Measures to     on incorporating digital terminals. After verifying their                                                 systems to the new
                                                                                                                                                                                                                                          data center at the
     receive health check-ups that are essential for the             Support Raising Next-Generation Children.                  effectiveness, we introduced iPads at all Gusto restau-                                                   end of 2019.
     prevention and early detection of disease.                                                                                 rants in March 2016. In March 2017, iPads were

25   Skylark Group integrated report 2016                                                                                                                                                                                 Skylark Group integrated report 2016    26
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